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Coal India Limited
3Q: Operating results in line
„EBITDA in line, PAT miss due to higher tax, Maintain Neutral
PAT grew 55%QoQ to Rs26.4bn vs. our Rs28.9bn est. EBITDA was Rs33.8bn in
line with our est., but higher tax rate of 37% (our est. 33%) led to lower PAT. We
cut our FY11-12E EPS by ~4% & PO to Rs339 (from Rs350) due to lower vols.
(CEPI impact) & higher tax rate. Recent increase in Govt. focus towards resolving
approval issues is a positive for CIL’s volumes. However, logistics will remain the
key constraint to shipments. Despite pricing flexibility to pass thru cost inflation,
there is risk around Govt. not allowing coal price hikes due to inflation concerns.
CIL trades at 0.9x our NPV estimate (8x FY12E OBR adj. EBITDA) implying 12%
upside potential. Hence Neutral.
Volumes inline, realizations disappoint but costs lower
Coal output of 114mt (+26%QoQ) exceeded shipments of 110.5mt (+12%QoQ)
due to logistics constraints leading to coal stock increase (+3.5mt). ASP rose
3%QoQ, (3% below our est.). Wage costs declined 6%QoQ (2% below our est.)
due to absence of one time charges made in 2Q. Total costs were flat QoQ as 2x
higher overburden removal charges were offset by lower mining costs/ overheads.
Coal supply – a key Govt focus area; logistics issues persist
CIL’s FY11-12 output targets have been hit by 16-39mt due to (CEPI) pollution
norm related moratorium on output. Govt. has recently indicated that ~15 projects
could be cleared soon which could boost output by ~20-25mt. Logistics issues
persist - rake availability is ~170-175 rakes/day vs. target 180-185 rakes/day. We
cut volumes to 428mt (-1%) in FY11E & 444mt (-3%) in FY12E due to CEPI
impact.
CIL proposes to hike prices to offset rising cost pressure
CIL has started consultation with Govt. to hike base prices to offset wage cost
hikes due to 1) higher inflation linked wage components; 2) expected wage hike in
June 11. Other ASP levers are 1) higher e-auction premium (~93% in Dec10 vs.
60% in FY10); 2) higher e-auction mix ~12.5% of vols. (11.2% in FY10).
Price objective basis & risk
Coal India Limited (XOXCF)
Our PO of Rs339 is set at our NPV estimate. Our NPV analysis assumes a
WACC of 13% and a terminal growth of 2%. At our PO Coal India would trade at
10.5x FY12E EBIDTA and 9.3x FY12E adjusted EBITDA (adjusted for OBR). We
have assumed coal volumes of 423mn tons in FY10, 438mn tons in FY12E. We
forecast volumes to grow at 4% CAGR over FY13-18E.
Stronger volume growth, higher realisations and lower costs pose upside risks to
our valuations. Downside risks to our valuations are slower pace of environmental
approvals, prohibition of coal mining in areas where CIL reserves are located,
sharper than expected increase in wage costs and inability to raise prices to pass
thru wage cost hikes.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Coal India Limited
3Q: Operating results in line
„EBITDA in line, PAT miss due to higher tax, Maintain Neutral
PAT grew 55%QoQ to Rs26.4bn vs. our Rs28.9bn est. EBITDA was Rs33.8bn in
line with our est., but higher tax rate of 37% (our est. 33%) led to lower PAT. We
cut our FY11-12E EPS by ~4% & PO to Rs339 (from Rs350) due to lower vols.
(CEPI impact) & higher tax rate. Recent increase in Govt. focus towards resolving
approval issues is a positive for CIL’s volumes. However, logistics will remain the
key constraint to shipments. Despite pricing flexibility to pass thru cost inflation,
there is risk around Govt. not allowing coal price hikes due to inflation concerns.
CIL trades at 0.9x our NPV estimate (8x FY12E OBR adj. EBITDA) implying 12%
upside potential. Hence Neutral.
Volumes inline, realizations disappoint but costs lower
Coal output of 114mt (+26%QoQ) exceeded shipments of 110.5mt (+12%QoQ)
due to logistics constraints leading to coal stock increase (+3.5mt). ASP rose
3%QoQ, (3% below our est.). Wage costs declined 6%QoQ (2% below our est.)
due to absence of one time charges made in 2Q. Total costs were flat QoQ as 2x
higher overburden removal charges were offset by lower mining costs/ overheads.
Coal supply – a key Govt focus area; logistics issues persist
CIL’s FY11-12 output targets have been hit by 16-39mt due to (CEPI) pollution
norm related moratorium on output. Govt. has recently indicated that ~15 projects
could be cleared soon which could boost output by ~20-25mt. Logistics issues
persist - rake availability is ~170-175 rakes/day vs. target 180-185 rakes/day. We
cut volumes to 428mt (-1%) in FY11E & 444mt (-3%) in FY12E due to CEPI
impact.
CIL proposes to hike prices to offset rising cost pressure
CIL has started consultation with Govt. to hike base prices to offset wage cost
hikes due to 1) higher inflation linked wage components; 2) expected wage hike in
June 11. Other ASP levers are 1) higher e-auction premium (~93% in Dec10 vs.
60% in FY10); 2) higher e-auction mix ~12.5% of vols. (11.2% in FY10).
Price objective basis & risk
Coal India Limited (XOXCF)
Our PO of Rs339 is set at our NPV estimate. Our NPV analysis assumes a
WACC of 13% and a terminal growth of 2%. At our PO Coal India would trade at
10.5x FY12E EBIDTA and 9.3x FY12E adjusted EBITDA (adjusted for OBR). We
have assumed coal volumes of 423mn tons in FY10, 438mn tons in FY12E. We
forecast volumes to grow at 4% CAGR over FY13-18E.
Stronger volume growth, higher realisations and lower costs pose upside risks to
our valuations. Downside risks to our valuations are slower pace of environmental
approvals, prohibition of coal mining in areas where CIL reserves are located,
sharper than expected increase in wage costs and inability to raise prices to pass
thru wage cost hikes.
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